Microsoft's frenemies: The necessity of partnering up

How do you solve a problem like Apple and Google?

If you're Microsoft, you find a Google or Apple competitor and strike a deal to combat a common foe.

The "enemy of my enemy is my friend" ethos has been a major part of Microsoft's strategy to compete with the seemingly impenetrable Apple and Google in both the search and mobile markets. In the past year, Microsoft's search partnership with Yahoo passed muster with regulators; it announced a deal to run Windows Phone 7 on Nokia phones; and it teamed up with RIM to have Bing replace Google as the default search provider on BlackBerry devices.

And this week Microsoft acquired VoIP services company Skype for a whopping $8.5 billion. Although Microsoft and Skype do not share a common enemy, the buy is being viewed by industry analyst as a (very expensive) way for Microsoft to keep rivals, namely Google, from buying Skype. The Microsoft-Skype union will also put Microsoft in a better position to compete with - you guessed it - Apple and Google, as all parties add more VoIP and video calling features to their portfolios - Apple with Facetime, and Google with Google Talk.

Partnering with "frenemies" or buying a company has become an inevitable course of action for a behemoth like Microsoft that spreads itself to every market possible, says Faisal Hoque, technology convergence expert and author of "The Power of Convergence: Linking Business Strategies and Technology Decisions to Create Sustainable Success."

"Whether you are Microsoft or General Electric the same rules apply," says Hoque, who is also the founder of BTM, a management solution provider. "You can't be the innovative leader in every single category you go after."

Hoque dismisses the criticism that Microsoft can't break into new markets on its own, highlighting the success of the Xbox 360 in gaming.

"We like to quickly categorize companies like Microsoft in definitive terms. But innovation is a long-term process."

Hoque stresses that Google and Apple are unique and agile companies that were able to quickly corner three crucial markets: search (Google), smartphones (Google and Apple) and tablets (Apple).

"When you think of search, you think of Google and no one else, and that's very difficult to compete against, no matter how many resources Microsoft has," Hoque says. "Even if Microsoft can come up with a better product, the market will not recognize it because the brand value proposition is not there."

Combine that with the hold that Apple has on smartphones and tablet PCs, and Microsoft has no choice but to figure out a collaborative alliance strategy, says Hoque, adding that Microsoft has done all it can on its own by developing Bing and Windows Phone 7 and aggressively marketing both entities.

"In a way, they are stuck," says Hoque. "They have to form alliances."

But in the end, Microsoft's recent partnerships will be good for overall innovation, he says.

"When companies team up, it forces the common enemy - in this case Google or Apple - to be more vigilant about their innovation and ability to stay on top. That's how markets grow."

Is it possible that these alliances might backfire at some point?

"Sure, they could backfire if Microsoft and its partners don't have a good governance model and a smart integration strategy," says Hoque.

It's worth noting that Microsoft does not have a great track record on integrating technologies from acquisitions and partnerships.

The Yahoo partnership has yet to generate the revenue either company expected and has not reduced Google's search market share. Microsoft's 2007 purchase of online advertising company aQuantive for $6.3 billion has had mixed results, and its $500 million acquisition of Sidekick-maker Danger in 2008 led to the disastrous Kin flip phones that folded after two months.

But win or lose, Microsoft's alliances show that the world is hungry for more and better technology. This should come as good news to Apple and Google, says Hoque, even as a united front forms against them.

"Obviously there's a huge demand out there for smartphones and better search functionality, and that's why you see these Microsoft alliances," he says.

"When there's no demand, there's no market."

Shane O'Neill covers Microsoft, Windows, Operating Systems, Productivity Apps and Online Services for CIO.com. Follow Shane on Twitter @smoneill. Follow everything from CIO.com on Twitter @CIOonline and on Facebook. Email Shane at soneill@cio.com

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Shane O'Neill

CIO (US)
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